How Will The Tax Cut And Jobs Act Impact Health Care?

AARP has come out in opposition to the newly enacted Tax Cuts and Jobs Act of 2017 (“TC&JA”). There are three areas of concern: The effect of the legislation on health care services in general, on Medicare and on Medicaid.

GENERAL HEALTH CARE

The Current State of Affairs

Since the rollout of the Affordable Care Act (“ACA”) in 2010, the uninsured rate nationally has decreased significantly. For example, according to the United States Census Bureau, in 2013 the uninsured rate was 14.5%. By 2013, the rate was 8.6%. By any measure, that is impressive. But there is a question as to the extent to which expansion of coverage, including those with pre-existing conditions, has affected insurance rates, not only under the ACA but generically. Critics of the ACA point to increased premiums and exorbitant deductibles. In several states, rates for health insurance premiums are scheduled to increase by more than 50%. In the generic market, it is not uncommon for a family plan to have a deductible of several thousand dollars. It is unclear whether the spike is due to the structure of the ACA, increased medical costs, or both. The cost of the ACA to the government is also a target of its opponents. In 2016, the Congressional Budget Office estimated the net cost to the federal government of the subsidies and ancillary expenses associated with the health insurance coverage provisions of the ACA to be $8.9 trillion between 2017 and 2026, which is $1.4 trillion higher than if the ACA had never been enacted. Also, and more pernicious in terms of the viability of a system in which government subsidy plays such a significant role is the collapse of many of the non-profit health care co-ops funded by the government. According to Forbes Magazine, just seven of the twenty-three co-ops are still operational.

The Rhode Island Experience

The ACA has been an effective instrumentality for insuring the uninsured in Rhode Island. Between 2013 and 2016, the number of uninsured individuals in Rhode Island declined from 120,000 to 45,000, a 62.5% decrease. This amounts to a reduction in the uninsured Rhode Island population from 11.6% to 4.3% during the period spanning 2013 to 2016. The Kaiser Family Foundation found that between 2016 and 2017, average monthly premiums for benchmark plans on Rhode Island’s exchange increased by an average of only 1% in the Providence market.

Impact of the TC&JA

The TC&JA eliminates the provision of the ACA that mandates the purchase of health insurance, effective in 2019. Currently, the penalty for each person on a tax return who has not purchased health insurance is $695 for an adult and $347.50 for a child or 2.5% of household income, whichever is greater. Presumably, elimination of the mandate will gut the ACA, effectively repealing without replacement which is injudicious of the Republicans, to say the least. Senator Susan Collins of Maine (R-Maine) withdrew her opposition to the proposed legislation after receiving a promise from Majority Leader Mitch McConnell (R-Ky) that further legislation will be introduced in 2018 to stabilize the insurance markets and bolster health care protections. This would probably include incentivizing insurance carriers to operate across state lines as a means of reducing the cost of insurance. McConnell’s promise is a dubious proposition in light of the discord among the Republicans and Democrats in the Congress and the fact that the Republican majority in the Senate in 2018 will be even more narrow with the election of Democrat Doug Jones in Alabama.

With regard to deduction of medical expenses, the TC&JA does temporarily expand the deduction for medical expenses for two years increasing the amount that can be deducted from those medical expenses exceeding 10% of the taxpayer’s adjusted gross income to such expenses exceeding 7.5% of adjusted gross income, which is good news for elderly taxpayers who are confronted with high medical costs and/or nursing home outlays.

MEDICARE

To be clear, the TC&JA makes no cuts to the Medicare program. However, Senate rules impose a ceiling on deficit spending such that addition of more than $1.5 trillion to the budget over a ten-year period triggers automatic cuts known as sequester in mandatory programs such as Medicare. The bi-partisan Committee for Responsible Federal Budget has prognosticated that unless the automatic cuts are overridden by Congress, the legislation will result in sequester cuts of $28 billion to the Medicare program in the next fiscal year. Republicans argue that the job creation component of the Act will significantly erode deficit spending by increasing tax revenues generated by an invigorated economy. Also, as intimated, the automatic cuts can be overridden by Congress, but it will require 60 votes in the Senate to do so. Consequently, the 2018 election is of paramount importance. Those who oppose the TC&JA fear that if the deficit grows, there will be calls by deficit hawks to curtail so-called entitlement programs which will be very harmful to the poor and elderly. In our divided country epitomized by a Congress which is unwilling and unable to compromise, it is increasingly unlikely that measures to safeguard these programs will be adopted in the near future. Action will probably be undertaken when the spiraling costs of these programs are unsustainable and irreversible. History teaches us that when legislation is a reaction to crisis, there are usually unintended consequences.

MEDICAID

Under the ACA, states were mandated to expand eligibility for the Medicaid program. But in 2012, the United States Supreme Court, in National Federation of Independent Business v. Sebelius, effectively rendered the ACA provision nugatory, limiting the federal government’s enforcement powers, freeing the states to choose whether to expand the program. Rhode Island chose to expand Medicaid which in part accounts for the positive results in insuring the previously uninsured. But, this has come at a cost. The most recent projection by the Congressional Budget Office estimated the impact of the ACA on state Medicaid spending to be $46 billion for the period of 2016 through 2025. During fiscal year 2016, combined federal and state spending for Medicaid in Rhode Island totaled about $2.4 billion. This translates to increased spending on Medicaid in the state by approximately 30.6% for the fiscal years spanning 2012 through 2016.

Like Medicare, the TC&JA does not directly reduce funding for the Medicaid program. During the Republicans’ aborted attempt to directly repeal the ACA, there was an attempt by Senator Lindsey Graham (R.S.C.) to replace the ACA with a block grant system, but that effort failed to garner enough votes to pass the Senate. This renders both programs vulnerable to mandatory cuts in the future unless the Senate overrides its sequester provisions or the Congress fashions a comprehensive legislative solution to stabilizing both programs.

RECAP

While the ACA has increased coverage for many of the nation’s uninsured, there are systemic problems which have caused most of the co-ops funded by the government to collapse. Rhode Island, which chose to expand Medicaid under the ACA, has had success in increasing coverage but it has come with great cost to the government. The TC&JA eliminates the mandate requiring the purchase of health insurance which is essential to maintain the ACA. Problematically, this was done without replacing the ACA with a viable alternative in the hope that putative free market reforms will be implemented sometime in the future. The TC&JA does provide some relief to elderly taxpayers by increasing the medical deduction for two years so that a taxpayer can deduct medical expenses, including nursing home costs that exceed 7.5% of adjusted gross income, thus increasing the floor from its current level of 10%. While the TC&JA does not reduce spending on the Medicare and Medicaid programs directly, it makes them vulnerable to mandatory cuts due to increased spending under the Senate sequester rules, unless the Congress suspends the rules. Many fear that the failure to deal with these programs in a comprehensive fashion will lead to severe cuts in the future.